Foreign Relations of the United States, 1952–1954, East Asia and the Pacific, Volume XII, Part 1

890.00/12–154

Memorandum Found in Department of State Files

secret

[Washington,] December 6, 1954.

Memorandum From Treasury to NSC Ad Hoc Committee On NSC 5429/2¹

The Committee has for its task the appraisal of the problems of assistance in the Far East, particularly with reference to regional activities as set forth in the reference document.

Each country in fact constitutes a separate and unique economic and political problem, but for purposes of analysis the countries of Far East and South Asia may be grouped into four categories:

1. Korea, Formosa and Indo-China—These countries clearly fall in the category requiring grant aid assistance, especially for defense support.

2. Japan—This is the only industrialized country in the area and has a problem of modernizing its plant and expanding its overseas markets. It is already making substantial progress through effective use of its own resources and is being assisted by large amounts of dollars arising from military spending. Much can be done to improve the climate for private investment in Japan. Further external financing for Japan can be done on a loan basis through established institutions. Additional assistance can, when needed, be provided from sales of agricultural commodities under Public Law 480.²

3. The Philippine Islands—The Philippines have a unique position in relation to the U.S., enjoy a preferential position in U.S. trade and benefit from U.S. military spending. The climate for private investment is relatively good. The Government is firmly oriented toward the West and has established internal security. Much can be done to speed economic development by technical assistance and by external financing through established lending institutions.

4. South and Southeast Asia—Afghanistan, Pakistan, India, Ceylon, Burma, Malaya, Thailand and Indonesia. These countries have low standards of living and low rates of saving and capital investment. In most of the area productivity has failed to keep pace with population growth and real living standards are, in some cases, below those of 1939. The capacity of these countries to absorb external economic assistance for development is limited. In most cases governments are relatively inefficient and private business and technical talent is limited. Most of the governments are new, highly nationalistic, and frequently suspicious of the U.S. They tend to be socialistic in their thinking and in many cases have not adopted policies favorable to inducing private investment.

The primary concern of our Government is, of course, to stop the expansion of Communism in the area. By itself, however, U.S. assistance for this purpose, no matter how massive, could make no more than a minute contribution to the improvement of living standards in the area.

The best hope for improving this situation lies in the process of persuasion and education by which these countries can themselves gradually develop savings, investment, and enterprise from within. External assistance is truly effective only if it is used as a lever to bring about such a fundamental improvement. For these reasons, technical assistance and loans through such agencies as the International Bank and the Export-Import Bank can be made useful instruments, though they may have to be supplemented by other forms of aid in the transition period. The important thing is to recognize that these various forms of external help are of little effectiveness by themselves. They are a means to stimulate more effective use of local resources.

For the fiscal years 1950 through 1954, FOA expenditures for economic assistance to the area have totaled $177 million. During the same period disbursements by the International Bank and the Export-Import Bank have totaled $130 million. Committed but undisbursed funds of the FOA for the area at the end of June 1954 totaled $209 million and for the two banks $165 million as of September 30. (The foregoing figures include the Philippines.)

The essential problem before the U.S. Government at this juncture is whether we shall undertake commitments for a sustained period for development in this and other areas on a grand and contingent loan basis. The Treasury believes such a course will not stimulate these countries to make effective use of their own human and material resources but may have the opposite effect, nor will it encourage them to take the steps which will encourage private investment.

Rather the Treasury recommends a definite tapering off of grant and contingent loan assistance over the next few years. It recommends that technical assistance be maintained and the activities of the International Bank and the Export-Import Bank in the area be increased. The projected International Finance Corporation will also make a contribution over the longer term. Lending of these institutions can be supplemented by sales of agricultural surpluses under Public Law 480 and by limited ad hoc grant assistance under special circumstances.

Regional economic cooperation in the South Asian-Far Eastern area may be encouraged by strengthening the Consultative Committee of the Colombo Plan. Such a grouping may (a) consider the regional aspects of the development plans of member countries, (b) discuss development problems and policies, and (c) consider other economic problems of concern to Asian countries. The basic objective of having a regional grouping—to afford these countries an opportunity to build a community of spirit and a sense of mutual interest and responsibility for their own welfare—will thus be achieved.

1. This committee was more formally known as the NSC Ad Hoc Committee on an Asian Economic Grouping. See footnote 3, p. 1020.
2. Approved July 10, 1954, this statute is formally known as the Agricultural Trade Development and Assistance Act of 1954. For text, see 68 Stat. 454.